Vast amounts of Federal debt and guarantees are going into the asset class in America of least value to our long-term competitiveness in an increasingly competitive world. The idea that hard-working Asians and Brazilians will endlessly lend Americans money so that we can live in fantastically superior dwellings borders on insanity. The American empire and its military superiority is not that durable or even that important, especially to countries such as India, China and Brazil that currently have no serious national security worries.
The more the Feds ruin the Federal finances and America's international competitiveness by plowing vast amounts of money into housing, the more the scheme called Social Security will be perceived as what it always has been: an inter-generational Ponzi scheme.
Baby-boomers and current workers of retiree age, finances battered, cannot expect even the current level of Social Security payments to be there for them. The money has been spent.
Foreigners will not provide that money cheaply forever, and current workers are having too much trouble making ends meet to willingly pay higher and higher taxes on their labor to support the upper generations.
A simple first step is to phase out the tax deductibility for mortgages. If home ownership is the goal, then all home owners could receive a modest subsidy, whether they owned their homes in full or had a mortgage.
A first step toward fiscal sanity would be for official Washington to tell the truth: as a nation, we are over-housed. Large houses do not add to economic productivity. Factories, career-oriented education, R&D: all those things do. The housing bubble is bursting. Let it burst and let housing compete for people's money on an even footing with other desirable goods and services, such as automobiles, cell phones and medical services.